A lawyer representing the fantasy sports platform Sleeper has shared a letter sent to Offices of the Inspector General alleging that the Commodity Futures Trading Commission (CFTC) has illegally blocked their client’s registration as a futures commission merchant (FCM). Approval as an FCM would allow Sleeper to partner with a CFTC-approved prediction platform to offer prediction markets through the DFS operator’s app.
Attorney Josh Sterling, a partner at the firm Milbank and a former CFTC division director, shared the letter in a Sept. 15 post on LinkedIn. The letter claims that the CFTC is “denying our client basic due process, and it is irreparably harming our client’s interests.”
Sleeper calls CFTC interference illegal
The letter, first reported by Dustin Gouker via Substack, states that the firm, on behalf of Sleeper, is reporting to the Inspectors General that the CFTC is breaking the law by directing the National Futures Association (NFA) to withhold approval of Sleeper’s membership and registration as an FCM. The NFA is tasked with conducting registration and requirement checks for certain intermediary entities on behalf of the CFTC.
The letter begins:
“We are reporting to you that the Commodity Futures Trading Commission is violating the law in refusing to approve our client’s application for registration as a futures commission merchant (‘FCM’) under the Commodity Exchange Act (‘CEA’). We understand that this illegal delay has been undertaken at the direction, or at least with the full knowledge, of the CFTC’s Acting Chairman and sole Commissioner.”
There are two applications for NFA membership — one for “Sleeper” and one for “Sleeper Markets LLC” — currently listed in the NFA database as pending.
The letter requests that the Inspectors General for the Treasury Department and the CFTC investigate what happened with Sleeper’s applications, as well as “the broader potential illegality this incident strongly suggests may be occurring.”
Sleeper application delayed despite NFA saying it was complete
The letter on behalf of Sleeper lays out the timeline of the DFS operator’s applications, as well as the subsequent actions of the CFTC since.
The letter states that Sleeper submitted its application to register as an FCM on May 30 and worked for weeks with the NFA to ensure that the application would be approved. On Aug. 27, the NFA informed Sleeper that the application was complete and suggested that approval was imminent.
Around the same time, the letter claims, CFTC staff instructed the NFA to not approve Sleeper’s FCM application, as the Commission was conducting further review. The letter states that the delay was related to “unspecified concerns by the Commission about the propriety of certain event contracts that are or will be listed on a designated contract market.” It also points out that, as an FCM, Sleeper would have no role in self-certifying any contracts. That role falls to the CFTC-approved designated contract market (DCM) with which an FCM partners.
Sleeper’s lawyers then claim that the CFTC’s acting general counsel informed them on Sept. 5 that they had not received the application materials from the NFA and also indicated that they thought the application was “incomplete.” The lawyers then issued a “formal demand letter” to acting CFTC chair Caroline Pham laying out their issues and requesting the application be approved “as required by the CEA.”
The lawyers, at the acting general counsel’s suggestion, attempted to contact Pham directly to discuss the matter but never received a response. They say they then again discussed the issue with the NFA, who reiterated that their applications were complete.
As the letter points out, Pham stands as the lone CFTC commissioner, following gradual exits as President Trump’s nominee to lead the Commission, Brian Quintenz, is still awaiting confirmation.
CFTC actions could be indicative of further mismanagement, abuse?
The letter then lays out how they believe the CFTC’s “stonewalling” violates the law, saying “the law is clear that ‘[a]ny person desiring to register as a futures commission merchant . . . shall be registered upon application to the Commission.’” It further states that CFTC regulations don’t allow for the Commission to “pull an application for registration out of this well-established process for any reason besides statutory disqualification.”
The lawyers also stated that the CFTC’s “illegal misbehavior” amounts to “mismanagement, waste, and abuse,” which Inspectors General are tasked with investigating at government agencies.
The letter ends with a full-throated call for the Inspectors General to conduct an investigation:
“The Commission has broken the law by denying our client the registration to which it is entitled under the CEA. If this is as far as the misconduct goes, it is bad enough. But we are concerned that this kind of misconduct may be more widespread. As Inspectors General, you will do a great service by investigating the blatant illegality that is harming our client, and by probing more widely for any pattern or practice of misconduct. Accordingly, we respectfully and formally request that the Inspectors General conduct an investigation into the Commission and recommend corrective or disciplinary action as appropriate.”
DFS operators following Underdog’s entry into prediction markets
Sleeper’s desire to offer prediction markets in conjunction with a DCM is the latest signal in a growing trends of sports gaming operators taking regulatory action to enter the prediction market space.
Earlier this month, Underdog, a leading DFS operator, announced it was partnering with Crypto.com Derivatives North America, a CFTC-approved DCM and Derivatives Clearing Organization, to begin rolling out sports event contracts in select states. Underdog’s app carries the markets, while the trading is facilitated by Crypto.com‘s prediction market infrastructure.
Fellow DFS operator PrizePicks has also applied for NFA membership and registration. Its application is also listed as “pending” in the NFA database.
